How Does a Smart Contract Handle a Bond Default or Bankruptcy Scenario?
A smart contract for a bond can be programmed to handle default scenarios automatically. If the issuer fails to deposit funds for a coupon payment by the due date, the smart contract can automatically trigger a "default" state.
This state could be programmed to transfer control of any locked collateral to the bondholders or to a predefined trustee. In a bankruptcy, the smart contract would likely be subject to external legal proceedings, but its transparent record of ownership and payments would provide clear, indisputable evidence for the court and administrators to use in the claims process.
Glossar
Bond
Valuation ⎊ A bond, within the context of cryptocurrency derivatives, represents a debt instrument referencing an underlying asset ⎊ often a stablecoin or a basket of crypto assets ⎊ with a predetermined repayment schedule and interest rate, functioning analogously to traditional fixed-income securities but introducing counterparty risk specific to the digital asset space.
Smart Contract
Code ⎊ The contract is fundamentally self-executing code deployed on a distributed ledger, embodying the terms of the agreement in an immutable format.
Bankruptcy
Default ⎊ This state signifies a critical failure where a counterparty's obligations exceed their available collateral, often triggered in options or futures trading when losses cannot be covered.